Govt to infuse additional Rs 6,000 crore in PSU banks

NEW DELHI: The government today approved additional capital infusion of Rs 6,000 crore in 10 public sector banks with an objective to raise its holding to a minimum 58 per cent in all state-run banks.

The government has already announced infusion of Rs 15,000 crore in the Budget to ensure that capital adequacy ratio of all the public sector banks increase to 7 per cent.

The increase will give banks additional headroom to raise funds from capital markets without depending on the government.

"There are many PSBs where the Government of India's holding is close to 51 per cent," an official release said.

With government holding at just 51 per cent, banks cannot access the capital market for raising additional capital by dilution of government holding.

Banks where Government's equity is less than 58 per cent include, Bank of Baroda, Oriental Bank of Commerce, Andhra Bank, Dena Bank, IDBI Bank and Vijaya Bank. The exact amount and mode of infusion in each bank would be decided later.

"The proposed capital infusion would enhance the lending capacity of the PSBs to meet the credit requirement of the economy in order to maintain and accelerate the economic growth momentum," the release said.

The decision was taken at a meeting of the Cabinet headed by Prime Minister Manmohan Singh.

This additional availability of capital is likely to benefit employment oriented sectors, especially agriculture, micro and small enterprises, export, entrepreneurs etc. in promotion of their economic activities which would, in turn, contribute substantially to the growth of the economy.

"The present capitalisation process of the PSBs has presented an opportunity to the government to raise its shareholding in the PSBs, specially in those PSBs where the government's holding is close to 51 per cent," the release said.

The Centre's holding in Bank of Baroda stands at 53.8 per cent, Oriental Bank of Commerce at 51.1 per cent while in case of Andhra Bank, it is 51.6 per cent. In IDBI Bank, Dena Bank and Vijaya Bank, the government holding is 52.7 per cent, 51.2 per cent and 53.9 per cent respectively.

During 2008-09, the advances of PSBs increased by over 25 per cent as against 10 per cent by private sector banks and around 4 per cent by foreign banks.

Hence, these public sector lenders, the release said, would require capital commensurate with the increase in their Risk Weighted Assets (RWAs).

Though the minimum regulatory requirement of Capital to Risk Weighted Assets (CRAR) for the banks is 9 per cent, the Government has mandated a total CRAR of 12 per cent with 8 per cent equity Capital.

Finance Minister Pranab Mukherjee, in the Budget speech for 2010-11, announced that capital would be infused in the PSBs so that these are able to attain a minimum 8 per cent equity capital by March 31, 2011.

In the first tranche, in June, the government has approved capital infusion of Rs 6,211 crore in the five public sector banks as part of the Rs 15,000 crore capital infusion announced in the Budget.